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TELUS to Augment Scale of Operations With Competence Buyout

Zacks Equity Research

TELUS Corporation’s TU subsidiary, TELUS International, recently communicated that it is planning to acquire Competence Call Center (“CCC”) for approximately C$1.3 billion (nearly $1 billion). The transaction, which is subject to regulatory approvals, is expected to close in first-quarter 2020. Post completion, the Canadian telco firm is expected to emerge as a market leader in customer service by providing top-notch business process solutions to some of the world’s most established brands.

Based in Germany, CCC is a leading provider of high-quality customer care services with core focus on customer relationship management and content moderation. It has a workforce of more than 8,500 employees and operates at 22 locations in 11 countries.

Rationale Behind the Deal

The deal, one of the biggest in TELUS’ history, is aimed at fostering its operational and financial strength by focusing more on customer experience, content moderation, risk management, consulting services and back-end operations to expand footprint in Europe.

The agreement, which consists of debt and equity, will lead to an IPO in the next one to two years by two significant shareholders of TELUS International — TELUS Corporation and Baring Private Equity Asia (“BPEA”).

Post-acquisition, the Canadian firm will witness significant diversification of its international operations and client base, with 50,000 employees in 20 countries across North and Central America, Europe and Asia, elevating the enterprise value to nearly $3.8 billion. The buyout of CCC will augment TELUS’ presence in the content-moderation business, which involves monitoring websites and social media platforms on behalf of corporate clients.

Markedly, the transaction will boost TELUS’ consolidated financial performance, including revenues, EBITDA and free cash flow growth. Currently, the company owns 65% of TELUS International, and the rest owned by BPEA. Post the deal, the figure is expected to fall to 62%. With an aim to convert TELUS International into a lucrative business, the investment is estimated to generate yearly revenues of $1.32 billion, thereby supporting the company to enhance its customer service and broadband networks in Canada.

Current Business Scenario

The company has invested more than $175 billion in its network and operations since 2000, and plans to add about $40 billion in the next three years across the country. TELUS is poised to benefit from the increased penetration of smart devices, wireless data services and wireline fiber optic networks. It expects balanced growth in both the business segments, driven by investments in high-speed broadband technology. It also aims for greater subscriber base in key growth segments, including wireless, high-speed Internet and TELUS TV.

TELUS is focused on strategy execution along with amplifying efforts on cost efficiency for margin accretive customer growth and investment to support its growth strategy. With the expansion of IoT marketplace in Canada, TELUS is aiming to consolidate its foothold in the market. It has introduced the TELUS Global IoT Connectivity platform to deliver seamless connectivity and simplified billing across 200 networks globally to support the expansion of Canadian business enterprises.

Share Movement

Driven by diligent execution of operational strategies, the stock has added 14.7% against the industry’s decline of 25.1% in the year-to-date period.



Zacks Rank & Stocks to Consider

TELUS currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader industry are NRG Energy, Inc. NRG, Vivendi SA VIVHY and Alliant Energy Corporation LNT. While NRG Energy sports a Zacks Rank #1 (Strong Buy), Vivendi and Alliant Energy carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NRG Energy has long-term earnings growth expectation of 39.4%.

Vivendi has long-term earnings growth expectation of 13.9%.

Alliant Energy has long-term earnings growth expectation of 5.5%.

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